UK company accounts ‘need to be more balanced’

UK publicly traded companies need to be “more balanced in their reporting of their performance,” according to the Annual Review of Corporate Reporting by the Financial Reporting Council (FRC).

“Failure to acknowledge when things have not gone so well, excessive use of underlying profit figures or inappropriate use of alternative performance measures (APMs) are found too often and erode trust and undermine the quality of corporate reporting,” said the council.

The report said that most companies, particularly larger public companies, report in compliance with the accounting framework.

However, the report highlighted calls for companies to be more balanced in their reporting of their performance.

“Many companies still need to provide more specific, granular accounting policies, particularly around revenue recognition,” said the report.

“Companies should provide a clear linkage between their business models and their revenue policies and explanations of exactly when and how revenue is measured on complex long-term contracts, such as those entered into by outsourcers.”

The annual review provides the regulator’s assessment of the quality of corporate reporting in the UK based on its monitoring work for the year to 31 March 2016.

Of the 192 companies whose reports were reviewed, the FRC raised “substantive” queries with about one third.

Most companies concerned have agreed action to resolve the matters satisfactorily, primarily through their future reporting, the FRC said.

Paul George, executive director for corporate governance and reporting at the FRC, said: “Our goal is to deliver a framework for corporate reporting that fosters and supports continuous improvement in the quality of reporting by those we regulate, and which provides investors and other stakeholders with information they can understand and rely on.

“Our work on corporate culture this year highlighted that stakeholders and society in general have a vested interest in healthy corporate values, attitudes and behaviours that lead to sustainable growth and long term economic success.

“High quality corporate reporting can contribute to improved trust in business, so important to a successful economy.”

Commenting on the implications of Brexit for corporate reporting, George said: “Brexit could have significant implications for the adoption of international financial reporting standards depending on the exit arrangements negotiated by the government.

“The FRC continues to support the application of a single set of high quality global financial reporting standards for listed companies.

“Investors have told us they want comparability when reading company accounts.”